About two months ago, I started eating very healthy (no sugars, carbs, dairy) and about 3 weeks ago, I followed that up by doing a little cardio exercising and weight lifting. I lost 45 pounds and feel better than ever! However, it was not “comfortable” to do the above, and I had my struggles along the way, but I found the benefits (current and future) far outweigh the costs.
I found this great article, “Getting Comfortable with Discomfort” from our friends at Ron Blue & Co., that addresses the above dynamic in regards to investing. Enjoy!
Getting Comfortable with Discomfort
If there’s one thing that’s certain about investing, it is that market performance has its share of ups and downs. Rather than subjecting ourselves to a roller coaster of emotional highs and disappointing lows, perhaps a better mindset is to get comfortable with discomfort. While it’s easy to be content during comfortable times, how can we cultivate resilience during uncomfortable periods?
We have to remember that outperformance and reaping rewards is cyclical, just like underperformance and volatility. When we look at the most skilled investors in the world, we see that they have something in common – they can tolerate discomfort better than most other investors. In investing, the right decision is seldom the most comfortable one. Investments that feel good to buy usually cost too much to justify buying.
Case Study: Berkshire Hathaway
Warren Buffett is arguably one of the greatest living investors. With 50 years of investing now in the books, his company, Berkshire Hathaway, has averaged 20.8% per year. The S&P 500, of which Berkshire Hathaway is now a constituent, averaged 9.7% per year. He more than doubled the S&P’s performance! How did that happen? In order for Mr. Buffett to experience such successful long-term results, he had to be able to endure periods of dramatic underperformance.
Looking back, there were several years when Berkshire Hathaway’s performance was very different from the S&P 500. In 1999, for example, the firm returned -19.9% while the S&P 500 returned +21.0%. There were even several years in a row of underperformance. But 2015 stands out in particular because Berkshire Hathaway’s losses that year were far worse than the S&P’s. The firm lost 12.5% compared with a gain of 1.4% in the S&P 500. Yet, as we know now, many of the best years to be invested in Berkshire Hathaway immediately followed the worst.
How to Get Comfortable
So how do we maintain our resilience in the face of discomfort? By maintaining confidence in an investment process and not letting investment outcomes drive decisions. Warren Buffett is a stock investor with a value discipline who does the same thing, year after year. Outcomes will be what they will be, and he continues to rely on his process regardless of what is going on in the background.
We, as investors across stocks, bonds, and other assets around the world, must contend with political uncertainty and volatility. How do we invest during uncomfortable times like these? Like Warren Buffett, we also stick to a process. We do not let the potential outcome drive decisions.
You see, the problem with moving in and out of the market is that you have to be right twice. You have to be ‘right’ on getting out in terms of market direction and timing, and you need to be ‘right’ on when to get back in. History has shown that the time to get back into the market also happens to be the time of maximum uncertainty and discomfort. It is extremely hard to time the market’s ups and downs.
If you are confident in an investment process and you have an adequate time horizon, discomfort is okay. In fact, it should be welcomed and viewed as confirmation that you’re investing based on fundamental, time-tested principles instead of what just feels comfortable in the moment.
So, the author states that discomfort is okay and is to be welcomed. Just as eating healthy and exercise are fundamental behaviors that can lead to successful outcomes, they can definitely cause some discomfort in the moment! Get used to a little discomfort now, as it will surely pay off in comfortable ways in the future as you plan for a successful retirement.
Director of Financial Planning and Development